What Does It Mean When a Creditor Threatens to Sue You?

Drowning in a sea of debt is bad enough, but getting incessant phone calls from creditors threatening to sue can send anyone over the edge. Although some collectors try to use strong-arm tactics to intimidate debtors into paying up, the Fair Debt Collection Practices act limits a collector's ability to make threats the collection agency has no intention of carrying out.

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act prohibits third-party collectors in the United States from engaging in aggressive or deceptive techniques to secure payment from debtors. In general, the FDCPA requires collectors to open a 30-day dispute window so the debtor can challenge the validity of the debt, and to limit collection to reasonable times and in a manner that does not annoy (e.g., through repeated calling on the same day). In particular, section 807(5) of the FDCPA prohibits collectors from making a "threat to take any action that cannot legally be taken or that is not intended to be taken."

Cause of Action

If a debtor fails to dispute the validity of a debt, the creditor may assume the debt is valid and attempt to collect. However, before a collector can obtain an order of garnishment or levy, a court must agree that the debt is valid. This process is completed through a civil lawsuit. A collector may sue, but the FDCPA bars the collector from threatening to sue unless the collector intends to do so.

Lawsuit Process

If a creditor does sue, a lawyer for the collection agency will file a civil complaint in the local court where the debtor resides. The court will serve notice on the debtor, and both parties will present their evidence before the judge. If the judge agrees that the debt is valid, then the creditor will obtain a civil judgment and can then use the judicial process to garnish the debtor's salary or levy his bank accounts until the debt is resolved.

Considerations

The FDCPA does not restrict so-called in-house collectors for example, the collections department of a utility company calling about an overdue heating bill. The FDCPA only governs third-party debt collectors. If a collector does file lawsuit, or threatens to file one, it's helpful to retain a local attorney. Although the civil claims process is straightforward, retaining a lawyer will protect the debtor against unfair collection practices and improve the odds of working out an out-of-court settlement.